India is no exception to the steel glut carnage. After having a continuous flow of upward growth in production of finished steel for the past five years, Indian steel production faced a volte-face. In 2015-16, production of finished steel declined by 1.9 per cent . The reason for the set back was the surge in imports. Imports witnessed a gushing flow during the past two years. Imports of finished steel spurred to 71 per cent growth in 2014-15 and surged by another 25.4 per cent in 2015-16.

China was held responsible for this surge in imports. It damaged the domestic steel industry by dumping steel in India, argued the Indian steel producers. China was the biggest exporter of steel to India. It accounting for 24 per cent of the total finished steel imports in India in 2015-16

This led Govt of India to take a slew of non-tariff barriers to restrict the imports of steel in India. Since September 2015, Govt. of India imposed Safeguard duty, Minimum Import Price and Anti-dumping duty on steel imports. Cheering the government actions to protect the domestic industry, the Indian steel producers argued that India turns a dumping ground for steel after the world underwent the recession. India and EU were the two major importers, whose domestic steel industries were hit by excessive imports from China. Major steel importers - USA and S. Korea – imported less steel in 2015-16, afflicted by recession. In contrary, steel demand in India spurred due to its high growth trajectory with GDP rising by 7-7.5 per cent .

But, a heated argument was leveled against the import restrictions by the user industries in the country. Steel is an important input for the manufacturing sector in India. It is forecasted to be one of the main pillars for the growth of manufacturing sector and driving force for Prime Minister Narendra Modi’s Make In India spirit. India targets to be the manufacturing hub of the world by 2022. Steel is the base for the growth of infrastructure and capital goods – the two important sectors to rebuilt India. India’s manufacturing sector is in the transition phase. Infrastructure alone accounts for 60-61 percent of steel consumption. Steel contributes 2 per cent to the GDP of the country

Given the importance of steel in the manufacturing industry, restriction on steel imports will turn a boomerang to the growth, according to the steel users. They feared that import restrictions will escalate the prices of steel products and make shortages in the country. These will affect the growth of major industries like infrastructure, capital goods, electronic, automobile and others based on steel. Besides, the rise in the prices of steel will affect India’s exports. Engineering goods are the biggest item of India’s exports. It accounts over 21 percent of total exports

Industrial honchos are in the grip of paranoid. CII President Naushad Forbes warned that any long term restriction mean feeding higher costs to all the using sectors. Echoing the similar concern, Executive Director of ACMA (Automotive Component Manufacturing Association) said, “Over 70 per cent of the cost of a component is raw material, which is largely steel”.

In fact, there was a lapse in between the growth of domestic production and demand for steel. The domestic production of steel failed to keep a pace with the rise in demand. In 2015-16, when the consumption of finished steel increased by 4.5 percent, production declined by 1.9 percent. This led to a domestic shortage in supply and escalated the imports. Had there been a proportionate growth in consumption and production by the domestic producers, India would not have plunged in large imports of steel.
With the import restrictions intensifying, the user industries are caught in the vortex of uncertainty. WSA (World Steel Association) forecast a brighter prospect for India’s steel demand. India’s steel demand is likely to increase by 7.3 per cent in 2016 , according to WSA.

At this juncture, mounting import restrictions on steel does not hold good for the industries , particularly when the country is in upbeat to gear up the manufacturing under the Make in India campaign. Surge in imports was imperative because the gap between demand and domestic supply widened. To keep the steel base manufacturing sector afloat on the high growth curve, import is essential.

In fact, rise in imports should not be treated a xenophobia for the country. This is because import is not the major component for steel use in the country. Only 10 percent of the demand is met by imports. 90 percent of the steel demand is met by domestic production.

Even after the surge in imports, share of imports in total consumption increased marginally. In 2015-16, the import share in total consumption of steel was 14.6 per cent , compared to 12.1 per cent in 2014-15. In this perspectives, increase in imports, which stirred up a threat of stifling the domestic steel industry, was an exaggeration. Surge in imports was imperative by the economic reasons.

Therefore, given the economic windfall of the imports of steel, curb on imports for the sake of protection to the domestic industry does not sound rational, particularly when the country is on the growth trajectory under Make in India sentiment. Any curb on the growth, merely to achieve a political outreach, may derail the country’s ambitious manufacturing growth. (IPA Service)